Interbank Rate Rises on Cash Outflow

The Nigerian Interbank Offered Rates (NIBOR) closed at an average of 11.5 per cent on Friday, up from the seven per cent it was the preceding Friday as payments for bond and treasury bills purchases drained liquidity from the money market.

The Debt Management Office last week raised N214.95 billion from local currency bonds at its first auction this year, with payment for the bonds due last Friday.

According to Reuters, traders said the lending rate jumped on Friday as some banks scrambled for cash to pay for bonds and treasury bills.

Meanwhile, activities in the money market last week remained dictated by system liquidity. The week opened with improved system liquidity of N256.7 billion, indicating a N91 billion increase as against previous Friday. During the week, the CBN sold N208.9 billion worth of open market operations (OMO) instruments and N268.9 billion of treasury bills. The Treasury bills market experienced mixed sentiment during the week as average yield rose on two out of five sessions. The week started with sell-offs across short to medium term instruments as investors positioned for the OMO auction (143-day and 297-day instruments issued at 18.0% and 18.6% marginal rates) announced by the CBN.

“In the week ahead, there are no maturing securities and we expect money market rates to trade in double digits barring any major inflow into the system, while activities in the treasury bills market trade mildly bullish,” analysts at Afrinvest Africa Limited stated.

Forex Market Review

Activities in the foreign exchange (forex) market last week remained besieged by liquidity crunch in all segments of the market. At the Interbank, the CBN continued daily dollar interventions in order to meet some dollar demands and also contain intra-day interbank rate movement on all days during the week.

Accordingly, interbank rate hovered within a tight band of N305.25/$ and N305.5/$ at market close during the week. On the other hand, rates at the parallel market experienced some volatility as the naira recorded marginal gains against the dollar – appreciating to N495/$ – as the CBN resumed sales of the greenback to BDCs at the start of the week before depreciating to N498/$1 on Friday.

At the futures market, the value of open FX Futures contract at the end of the week rose to $3.9 billion from $3.8 billion last week.

However, the first monetary policy committee (MPC) meeting for 2017 will holding this week and analysts anticipate that the operations of the FX market and its impact on foreign funds inflow into the Nigerian market will be a talking point at the meeting.

“However, we do not think a major shift in the management of the foreign exchange market will be announced at the end of the meeting. Also, the approval of the Medium Term and Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) with exchange rate projection of N305.00/US$1.00 suggests that the controls in the FX market will persist in the short-term. Thus, we expect rate at the official market to remain at similar level in the week ahead whilst the parallel market remains pressured,” Afrinvest added.

Bond Market Review

Activities in the local bonds market was largely bearish as investors sold–off on a range of instruments in preparation for the Bond auction held mid-week and in response to result of the auction which showed the auctioned instruments were issued at higher yields. Thus, average yield across benchmark bonds rose on all trading sessions save for Monday (down 52bps) and Friday (down 4bps). The week started on a bullish note as yields closed 52bps lower on average but sentiment turned bullish in subsequent sessions with yields closing the week at 16.5% on average, representing a 22bps increase week-on-week.

Similar to the preceding week, the performance of Nigerian Corporate Eurobonds, sentiment was bullish as yields fell across a range of instruments save for the ACCESS 2021 and ACCESS 2017 (which inched higher by 0.2% apiece week-on-week) as well as FIRST BANK 2021 (up 4bps week-on-week).

Coincidentally, the FIRST BANK 2021 commands the highest year-to-date price return (+3.9%), due to strong buying interest earlier in the year, while ACCESS 2021 and ACCESS 2017 have recorded the worst performance with year-to-date losses of 0.2% apiece.

CBN’s Policies

The Governor, Central Bank of Nigeria, Mr. Godwin Emefiele last week debunked the insinuations in some quarters that policies of the government were meant to few the few in the society. He explained that the monetary policy stance of the central bank was always designed to serve the best interest of majority of Nigerians. Emefiele also noted that the “policies were put in place to help Nigeria pull through the hard time.”

He observed that the country found itself in the present situation due to lack of appropriate commitment to economic diversification, especially when the earnings from oil were as high as $140 per barrel, just as he noted that earnings of the government had risen to height of $3.2 billion and fell to about 500m per month recently. According to the governor, there was also a time when the crude oil price stabilised at $105 per barrel over a period of five years.

“What did we do with the huge accretion to the reserves then?” he queried in a statement yesterday.

Emefiele therefore, counseled the critics of the CBN and government policies that “priority will be given to Nigerian masses by managing the limited resources to provide for industrial raw materials, plants and equipment and agricultural inputs in order to create employment and generate wealth.”

Licenced BDCs

The Bureaux De Change (BDCs) licenced by the CBN are not part of parallel market operators, the Association of Bureaux De Change Operators of Nigeria (ABCON) declared last week. ABCON President, Aminu Gwadabe, in a statement, distanced his members from the activities of parallel market operators, which have constituted major setback to naira’s stability. He insisted that CBN-licenced BDCs are not parallel market operators as misconstrued by a large section of the public and even top government officials. Gwadabe disclosed that CBN-licenced BDCs, which are 3,147 operators at present, are key partners of the CBN in ensuring the stability and competiveness of the naira against world currencies, including the dollar.

He said licensed operators had been given up to December 31 by the CBN to renew their annual licensing fee of N250,000, are registered with the Corporate Affairs Commission (CAC) and with each operator meeting the mandatory N35 million capital base stipulated by the apex bank.

Gwadabe disclosed that the Finance Minster, Mrs. Kemi Adeosun severally accused the BDC parallel market operators of contributing to the continuous depreciation of the naira, but insisted the licensed BDCs do not fall within the category being described by the minister because they operate based on set guidelines.

The ABCON chief said the licensed BDCs, not only have their operational offices, they file reports with the Federal Inland Revenue Services (FIRS) and belong to ABCON, which is recognised by the apex bank as the umbrella body for licensed BDCs.

Gwadabe said the licensed BDCs are committed to naira’s stability at both official and parallel markets, and have consistently partnered with the CBN to achieve this objective.

Bitcoins, Virtual Currencies

The central bank last week warned commercial banks, other financial institutions under its regulation as well as Nigerians against transacting business in anyway with the use of virtual currencies (VCs). Some types of VCs include Bitcoins, litecoin, darkcoin and peercoin. The central bank also advised banks to ensure that existing customers that are virtual currency exchangers, have effective Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) controls that would enable them comply with customer identification, verification and transaction monitoring requirements.

“Where banks or other financial institutions are not satisfied with the controls put in place by VC exchangers/customers, the relationship should be discontinued immediately; and any suspicious transactions by these customers should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU),” it added.

The CBN noted that the emergence of VCs had attracted investments in payments infrastruture that provides new methods for transmitting value over the internet. Transactions in VCs are largely untraceable and annonymous making them susceptible to abuse by criminals, especially in money laundering and financing of terrorism, the central bank stated.

About the Author

Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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